EYE Summary (August 2024): Incredibly Undervalued

Hi all,

Thought I would make another one of these company summaries. As many of you would know, I did this a bit last year as well. Especially important I believe after I saw one poster (I won't name them, as I do not wish to embarrass them) provide completely false information. I will give them the benefit of the doubt, sometimes information can be difficult to find, but I thought I would make this thread to ensure this same travesty cannot happen again.

Lets continue the discussion here, as having the real numbers as the first post in the thread helps to ensure that information provided is factual and true.



NOVA EYE MEDICAL: ASX: EYE

Valuation: $1 based on peer analysis and reported revenue run rate of $28m.
Market Cap: $50m Revenue: $23m in FY24, run rate $28mCash: c. $10mDebt: noneNew best in class device just launched into the high growth Minimally Invasive Glaucoma Surgery (MIGS) market80% revenue growth reported in the last half. Growth rate likely to increase significantly following the recent announcements (e.g. reimbursement etc)80%+ gross profit margins. Very lean business model, significant potential operating leverage. Should be highly profitable in the near termCompany is targeting cashflow positive in the glaucoma division by FY25, but I have a suspicion we may be surprised with an earlier cash flow positive announcement (should have more certainty after August results arrive) Highly experienced and long term management team with a focus on maximising shareholder value (management own over 10% of the company and pay themselves low compensation compared to other ASX companies)



SPECIAL NOTE

- A common source of confusion is in relation to the profit/loss result for FY23. This was significantly distorted by a large, one off, non cash impairment, which made it appear as if the loss recorded last year was far larger than it actually was. Due to the impairment (completely noncash and one off), the company reported a loss of $15m for the full year FY23, whilst EBITDA level was only a loss of $8.6m for the full year. Since launch, on a PCP basis, the operating performance has actually been improving each half.

- EBITDA H1FY22 - $5,892, H2FY22 -$2,713, H1FY23 - $4,190

- H1FY23 likely negatively impacted by reimbursement uncertainty last year (which no longer exists), company expects material improvement in this result though in the results set to be released later this month

Two business segments + R&D pipeline

Glaucoma

Recently launched iTrack Advance as a minimally invasive solution to glaucoma treatment.Overcomes the significant non compliance issues and risks (ocular surface disease etc) associated with drops, as well as the high risk of traditional surgeries such as trabeculectomy.Develops on the original iTrack device which pioneered MIGS, however lacked the efficiency and ease associated with the new device. iTrack Advance significantly reduces the difficulty and time associated with the procedure through the incorporation of a handheld injector device which does most of the work for doctors, which will therefore drive significant demand.Benefits from a large number of patent protected features such as the illuminated tip (makes navigation easy - competitor products are difficult to see and procedures with them are akin to driving without headlights), pressurised OVD delivery system (makes it 10x more powerful than the closest competitor and significantly more controllable), full 360 degrees canaloplasty (closest competitor can only do 180 degrees at a time which significantly increase time procedure), only device that maintains the physiology of the eye and naturally restores the conventional outflow system (all other devices either tear the canal or involve the implantation of a stent)The most versatile MIGS procedure. Can be used for a number of different types of procedures (ab interno, ab externo etc) and is able to treat significantly more types of glaucoma, most notably, closed angle glaucoma (which no other device is able to treat). Also compliments almost all other types of procedures very well (e.g. can be combined with other MIGS, cataracts, implantable drug delivery devices etc.)Market leader globally. Most MIGS companies still are largely focused on the USA, whilst EYE has been actively leading the market in Europe and Asia. The original iTrack is one of only two devices approved in China, where it is experiencing strong growth, and will likely experience even greater growth following the approval of iTrack Advance.Seeking greater market access via several large multicenter randomised clinical trials (will enable increased reimbursement opportunities) as well as pursuing approval for use in several countries such as China. China presents a major opportunity as most people there have closed angle glaucoma, and iTrack Advance is the only MIGS device that can treat these patients (who are often more at risk of vision loss as well).

2RT

Clinical stage product aimed at being the first ever FDA approved treatment for early to intermediate AMD, a leading cause of blindness in the developed world and the biggest healthcare related cost for the Australian government.Anti VEGF injections for advanced stage AMD exist however these are incredibly expensive (around $25,000 per year). They are also quite inconvenient for people who tend to have mobility issues, as they are often monthly. Injections in the eye are also quite uncomfortable for patients. Moreover, failure to comply with treatment regime can result in permanent and rapid vision loss, so there is little margin for error for patients. Still, these are some of the most profitable drugs globally, and fetch valuations in the 10s of billions of dollars. Significant amount of M&A in the space.Advanced AMD only accounts for about 15-20% of patients, the early to intermediate market is significantly larger therefore even more lucrative. Targeting AMD in the earlier stages before more serious symptoms appear is ideal for patients. Usually it is already too late for patients when Anti-VEGF drugs become available.Inventor of 2RT is Professor John Marshall, a pioneer of the use of lasers in ophthalmology and the inventor of the excimer laser technology for refractive surgery, acquired by Alcon in 2000. In excess of 50 million procedures have been undertaken.Post-hoc analysis of a 2RT study with over 200 patients found it significantly reduced disease progression by 77%. If this is confirmed in a pivotal clinical trial, it will be one of the biggest breakthroughs in ophthalmology, saving governments around the world hundreds of billions of dollars and significantly boosting quality of life for so many people.Seeking a major partnership deal very soon to fund immediate European commercialisation (already has approval in Europe), and pivotal clinical study in the US for FDA approval and reimbursement.

Additional R&D

For competitive reasons the company does not disclose much info on its R&D, but they have confirmed that they are actively engaged in the development of new innovative products to drive future growth.
M&A

Very active M&A Market Two large acquisitions in 2022 for stent based procedures. Took place prior to reimbursement changes which now significant favour canaloplasty (e.g. iTrack Advance) as opposed to stents. Valuations indicate that Nova Eye Medical should be valued at least 15x higher than the current market capitalisation

Thesis

iTrack Advance is a best in class glaucoma treatment which will rapidly become the gold standard of treatment, and will therefore deliver significant near, medium and long term growth and profitability. There are already very clear signs of this happening. The company is on the verge of profitability, and is growing rapidly, so a valuation multiple of less than 2x sales is far too low. 2RT is a high potential device with minimal downside but significant upside. EYE’s valuation is so low that 2RT could never eventuate into an actual product and the share price would continue to rally solely due to iTrack Advance. This presents a free option to benefit from any upside associated with 2RT, whilst being protected from any downside risk. Partnership will be a major rerate catalyst.Cash flows from iTrack Advance will be reinvested into new product lines. EYE already has an active R&D program aimed at developing novel and highly innovative new products.

Additional Information:

- Strong growth rate
- Expecting a material improvement in the operating result in H2FY24